a. If the required reserve ratio is 2.50 percent, what is the monetary multiplier? Instructions: Enter your answer as a whole number. . b. If the monetary multiplier is 5, what is the required reserve ratio? Instructions: Round your answer to 1 decimal place.
Question
a. If the required reserve ratio is 2.50 percent, what is the monetary multiplier? Instructions: Enter your answer as a whole number. . b. If the monetary multiplier is 5, what is the required reserve ratio? Instructions: Round your answer to 1 decimal place.
Solution
a. The monetary multiplier is calculated as the reciprocal of the required reserve ratio. In this case, the required reserve ratio is 2.50 percent, or 0.025 in decimal form. So, the monetary multiplier is 1 / 0.025 = 40.
b. If the monetary multiplier is 5, the required reserve ratio is calculated as the reciprocal of the monetary multiplier. So, the required reserve ratio is 1 / 5 = 0.2 or 20 percent when converted to percentage form.
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